AFA INVESTMENT FUND PTY LTD

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
AFA INVESTMENT FUND PTY LTD
[2023] SASC 48
Reasons for Decision of the Honourable Justice Bampton
EQUITY - TRUSTS AND TRUSTEES - APPLICATIONS TO COURT FOR ADVICE AND AUTHORITY
The applicant as trustee of a trust established by a deed of trust made on 11 November 2019 sought urgent judicial advice pursuant to s 91 of the Trustee Act 1936 (SA) regarding a provisional decision to vary or amend the trust deed to substitute a new legal entity for the beneficiary of the trust – where the existing beneficiary, a membership association of financial planners and advisors, was proposing to merge with another membership organisation of financial planners and advisors – where the merged entity would be substitute sole beneficiary of the trust – whether applicant had power pursuant to the trust deed to vary or amend the trust deed – whether the applicant would be justified in exercising any such power of variation – whether the proposed exercise of power is proper
HELD: The applicant has the power conferred by the trust deed to vary or amend the trust deed as proposed and the proposed exercise of the power is proper.
Trustee Act 1936 (SA) s 91; Uniform Civil Rules 2020 (SA) r 232.2; Administration and Probate Act 1919 (SA) s 69, referred to.
Burke v Public Trustee for the State of South Australia [2022] SASCA 64; Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; Re HEST Australia Ltd (2021) 66 VR 338; Application by NGS Super Pty Ltd atf NGS Super [2021] NSWSC 1694; Woolworths Group Ltd v Pinnacle Liquor Group Pty Ltd, re Woolworths Group Ltd [2019] FCA 1810; Kearns v Hill (1990) 21 NSWLR 107; Society of Lloyd’s v Robinson [1999] 1 WLR 756; Re Highcroft Trust [2008] NZHC 2019; Re McGowan and Valentini Trusts (2021) 63 VR 449, considered.

AFA INVESTMENT FUND PTY LTD
[2023] SASC 48
Civil: Application

BAMPTON J: AFA Investment Fund Pty Ltd (“the applicant”) is the trustee of a trust established by a deed of trust made on 11 November 2019 between Andrew Mitchard[1] and AFA Investment Fund Pty Ltd (“the trust deed”) and named by that deed the AFA Investment Trust (“the trust”). The beneficiary of the trust is the Association of Financial Advisers Ltd (“the AFA”). The AFA is a membership association of financial planners and advisors for whom the applicant holds money on trust (“the trust fund”).
[1] Andrew Mitchard, a solicitor, is named in the trust deed as the settlor of the trust. As a solicitor he was acting on instructions to facilitate the creation of the trust.
On 14 February 2023, the applicant filed an originating application seeking urgent judicial advice regarding a provisional decision to vary or amend the trust deed to substitute a new legal entity for the beneficiary of the trust in circumstances where the AFA, the existing beneficiary, was proposing to merge with another membership organisation of financial planners and advisors.
The applicant made the application pursuant to s 91 of the Trustee Act 1936 (SA) (“the Act”) or alternatively rule 232.2 of the Uniform Civil Rules 2020 (SA) (“the Rules”) for advice and directions as to whether it would be justified in exercising powers of variation pursuant to the terms of the trust deed (“the application for advice and directions”).[2]
[2] FDN 1.
On 17 February 2023, I ordered that:
(1)the matter be listed for hearing and determination on 24 February 2023;
(2)Holly Veale, barrister, be appointed amicus curiae; and
(3)the applicant pay the reasonable costs of the amicus curiae out of the funds of the trust.
At the conclusion of the hearing on 24 February 2023, I delivered brief ex tempore reasons and made the following orders pursuant to s 91 of the Act when read with s 69 of the Administration and Probate 1919 (SA), and/or rule 232.2 of the Rules:[3]
1.Pursuant to section 91 of the Trustee Act 1936 (SA) or alternatively, rule 232.2 of the Uniform Civil Rules 2020 (SA), the Applicant, AFA Investment Fund Pty Ltd, in its capacity as trustee of the trust established by a deed of trust made on 11 November 2019 between Andrew Mitchard and the Applicant (‘the Trust Deed’) and named by that deed the ‘AFA Investment Trust’, is hereby advised and directed it would be justified in exercising its powers under clause 8.1 of the Trust Deed to:
1.1.   approve the variation of the Trust Deed in the terms of the draft Variation Deed, being the Deed annexed to the affidavit of Stephen Patrick Nielsen affirmed 13 February 2023 and filed in these proceedings (‘the Proposed Variation’);
1.2.   cause a resolution for the approval of the Proposed Variation be put to a general meeting of the Members (as defined in clause 1.1 of the Trust Deed) on 28 February 2023.
2.The Applicant has liberty to apply in these proceedings for further judicial advice in relation to such matters as may arise from the Proposed Variation, including, but not limited to any request by the beneficiary of the Trust to transfer the corpus of the Trust to it.
3.The costs of this application be paid out of the funds of the Trust.
[3]    FDN 10; FDN 11.
I now provide more detailed reasons.
Background to the creation of the trust
On 1 September 1994, the ALA Property Realisation Trust (“the original trust”) was established by deed for the benefit of Australian Lifewriters Association Pty Ltd (“the beneficiary”) with individuals as trustees.
On 21 May 1998, the beneficiary changed its name to the AFA. In 2010, the original trust changed its name from ALA Property Realisation Trust to the AFA Investment Fund. On 3 October 2012, the applicant was appointed corporate trustee pursuant to a deed of variation and appointment.
On 15 October 2012, the applicant was registered as a propriety company and its constitution was signed by consenting members. On 11 November 2019, the trust deed was reconstituted by a deed of settlement. The new trust fund was named the AFA Investment Trust[4] and was created for the benefit of the AFA.
[4] FDN 3, Exhibit SPN03, Recital D.
The trust deed provided the objective purpose of the trust was:[5]
… to manage and invest the surplus assets of [AFA] to ensure the long term viability of [AFA] for the sole benefit of its current and future members.
[5] FDN 3, Exhibit SPN03, Recital E.
In November 2019, the AFA resolved and directed the applicant to pay the trust fund of the original trust to the new trust.
On 31 January 2023, the AFA entered a deed (“merger deed”) with the Financial Planning Association of Australia Limited (FPA), also a membership organisation of financial planners and advisors, relating to a proposal for a merger between the two entities (“the proposed merger”). Recital A to the merger deed states:[6]
The FPA and the AFA are two of Australia’s largest and longest standing associations of financial planners and advisers. Both the FPA and the AFA Boards have formed the view that substantial benefits will likely flow to their respective members from the [merger], including a stronger professional voice with a more efficient cost base.
[6] FDN 3, Exhibit SPN06, Recital A.
The proposed merger of the two entities was subject to various conditions precedent. It was proposed the merged entity would be known as the Financial Advice Association of Australia Ltd (or such other name to be resolved between the parties) (“the merged entity”).
The proposed merger was also subject to the applicant providing the FPA with written confirmation that it had approved certain proposed amendments to the trust deed by a draft variation deed, with such amendments to have the effect of making the merged entity the sole beneficiary of the trust (“the proposed variation”). Of note the draft variation deed is drafted on the assumption this Court has given judicial advice to the effect the applicant is justified in exercising its powers under the trust deed to vary the trust deed to give effect to the proposed variation. The proposed variation was subject to the endorsement of the AFA members and the approval of the proposed merger by the AFA and FPA members.
On 3 February 2023, the applicant’s board resolved to provisionally approve the proposed variation (“the trustee’s resolution”).
On 6 February 2023, the AFA board gave notice to its members of an extraordinary general meeting to be held on 28 February 2023 for the purposes of considering and, if thought fit, agreeing to the merger of the AFA and the FPA and the proposed variation.
On 7 February 2023, the AFA board resolved to provisionally approve the proposed variation (“the AFA board’s resolution”).[7]
[7] FDN 7, Exhibit SPN10.
It was anticipated that if the merger deed came into effect:
(1)certain directors nominated by the AFA would be appointed to the board of the FPA.
(2)the AFA would transfer its intellectual property rights and employees to FPA.
(3)the AFA would cease providing its services.
(4)the FPA would change its name and become what is described in the merger deed as “the merged entity”.[8]
(5)members of the defunct AFA would be “invited” to join the merged entity, and subject to making a valid application and other formal requirements, become members of the merged entity.[9]
(6)on 28 July 2023, a members’ voluntary winding up resolution in respect of the AFA will be passed.[10] The effect of that would be the winding up of the AFA and its eventual deregistration.
[8] FDN 3, Exhibit SPN06, clauses 5.2 and 9.1.
[9] FDN 3, Exhibit SPN06, clauses 7.1 and 7.2.
[10] FDN 3, Exhibit SPN06, clause 12.
The application for advice or directions
Pursuant to the trust deed, the trust is to be governed by and interpreted under the laws of South Australia.
The applicant was in difficulty or doubt within the meaning of s 91 of the Act when read with s 69 of the Administration and Probate Act as to the exercise of power to vary the trust deed and made the application for advice or directions in order that the draft variation deed could be put to the AFA members for approval. Affidavits of Stephen Patrick Nielsen, a director of the applicant, affirmed on 13 February 2023 (“Mr Nielsen’s first affidavit”)[11] and 23 February 2023 (“Mr Nielsen’s second affidavit”),[12] as well as the affidavit of Marianna Hill Danby, solicitor for the applicant, affirmed on 23 February 2023[13] are relied on in support of the application.
[11] FDN 3.
[12] FDN 7.
[13] FDN 6.
In Mr Nielsen’s second affidavit, he explained that the AFA had approximately 3,392 members as at 30 June 2022. He further said that the value of the assets held in the trust was $2.9 million as at 30 June 2022.
Mr Nielsen deposed that the AFA and the FPA are two of Australia’s largest and longest standing associations of financial planners and advisors. He explained that the boards of each association have engaged in steps to merge both associations into one consolidated entity. The respective boards of each of the AFA and the FPA have resolved to approve the proposed merger. A copy of the merger summary document dated 6 February 2023 is exhibited to Mr Nielsen’s first affidavit,[14] which sets out the background and general terms of the proposed merger. A copy of the executed merger deed dated 31 January 2023 is also exhibited to Mr Nielsen’s first affidavit.[15]
[14] Exhibit SPN05.
[15] Exhibit SPN06.
Mr Nielsen’s first affidavit explained that if the proposed merger proceeds, the merged entity will be known as the Financial Advice Association of Australia Ltd (or such other name to be resolved between the parties), being a company limited by guarantee. Mr Nielsen’s first affidavit exhibits a copy of the proposed constitution for the merged entity.[16]
[16] Exhibit SPN07.
By reference to clause 4 of the merger deed, the proposed merger is subject to various conditions precedent, including approval of the AFA members and the FPA members in accordance with their respective constitutions.
As stated above the proposed merger was also subject to the applicant[17] providing the FPA with written confirmation that it has approved the proposed variation. The proposed variation by virtue of clause 2.2 of the draft variation deed was also subject to the approval:
(1)of the AFA members in general meeting by majority resolution; and
(2)the AFA members and the FPA members to the proposed merger by special resolution.
[17] It is to be noted the trust is referred to by Mr Nielsen in his affidavits as the AFA Investment Fund which is the name of the previous trust created in 1994 and dissolved in 2019. The trust deed, recital D provides “The trusts created by this Deed are to be known as the AFA Investment Trust (Trust). Further the merger deed at clause 1.1 provides “the AFA Investment Fund means the AFA Investment Trust created by the AFA Investment Fund Trust Deed dated 11 November 2019...”. I have referred to the AFA Investment Trust as the trust in these reasons.
Mr Nielsen deposed that the AFA had given notice to its members of an extraordinary general meeting to be held on 28 February 2023 for the purposes of considering and, if thought fit:
(1)agreeing to a merger of the AFA and the FPA as set out and explained in the merger summary; and
(2)agreeing, in order to facilitate the merger and to satisfy a condition of the proposed merger, to the proposed variation in terms of the draft variation deed attached to the meeting notice.
A copy of the notice of extraordinary general meeting of the AFA dated 6 February 2023 and explanatory memorandum and notes thereto are exhibited to Mr Nielsen’s first affidavit.[18]
[18] FDN 3, Exhibit SPN08.
The proposed variation to be voted on by the members of AFA in general meeting by majority resolution is also exhibited to Mr Nielsen’s first affidavit.[19] As detailed above the draft variation deed provides:
The Supreme Court of South Australia has given judicial advice to the Trustee that it is justified in exercising its powers under the Trust Deed to vary the Trust Deed in the manner sought in this document.
[19] FDN 3, Exhibit SPN09.
Accordingly, the resolution of the applicant’s board dated 3 February 2023 to put the proposed variation to the members of the AFA was resolved on the condition that the applicant obtain judicial advice that it was justified in exercising its powers to put the proposed variation to a general meeting of the AFA members and, if approved by majority resolution, cause the draft variation deed to be executed.
Mr Nielsen concluded his first affidavit stating that the applicant considered that it would be justified in implementing the proposed variation if approved as it would result in the beneficiary being changed from the AFA to the merged entity, having the same objective purpose as the current beneficiary.
Jurisdiction of the Court to give judicial advice to a trustee
The application is made under s 91 of the Act when read with s 69 of the Administration and Probate Act 1919 (SA) and/or r 232.2 of the Rules.
As noted by counsel for the applicant in written submissions, the difference between the statutory provisions and the rules-based procedure is now lessened having regard to the decision in Burke v Public Trustee for the State of South Australia (“Burke”).[20] Burke recognises the statutory provision in South Australia, unlike other States, permits both the giving of advice (the advisory jurisdiction) or the making of binding determinations (referred by Doyle JA as the “supplementary jurisdiction”). In Burke, Doyle JA said as follows:[21]
… the provision of judicial advice to trustees serves both to protect a trustee who acts upon the advice provided, and to protect the interests of the trust. It achieves the latter both by ensuring that the interests of the trust do not become subordinated to the fear a trustee might otherwise have of personal liability, and by providing a summary style procedure to assist and guide a trustee (rather than forcing the trustee to rely upon the more cumbersome and expensive exercise of an action for general administration).
…
Advice provided in the exercise of the advisory jurisdiction is in the nature of private advice to a trustee. It does not conclusively determine the substantive issues in relation to which the advice is sought. It is for this reason that the terms of the advice or directions given under s 69 are usually expressed in terms of what the trustee would be justified in doing, or what it would be appropriate for the trustee to do.
(Footnotes omitted)
[20] [2022] SASCA 64.
[21] [2022] SASCA 64 at [362], [364] Doyle JA, with whom Stanley AJA agreed. Livesey P dissented but made similar observations about the advisory jurisdiction at [41]-[44].
In providing judicial advice, the Court effectively engages “solely in determining what ought to be done in the best interests of the trust estate”.[22]
[22] Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201 (Privy Council), cited in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at [104] and Burke at [135] (Livesey P dissenting).
As the applicant’s counsel submitted, the Court’s role in providing judicial advice usually concerns advice to an executor or trustee in relation to litigation. Counsel referred to judicial decisions in other Australian states concerning amendments to superannuation fund deeds where, for example, statutory changes necessitated amendments to a superannuation deed or amendments to a deed to provide for trustees to be renumerated. In such cases, applications for judicial advice have determined whether the superannuation fund deed under consideration cloaked the trustee with power to make the relevant amendment, and whether the proposed amendment was in the best interest of the beneficiaries of the superannuation fund.
In Re HEST Australia Ltd, Button J considered an application seeking judicial advice regarding whether a trustee was justified in amending its trust deed to add a fee charging power and whether the proposed amendments were within the power of amendment prescribed by the trust deed:[23]
The central question for the Court in an application [for judicial advice] is whether, on the material before it, the Court can be satisfied of the propriety of what the trustee proposes; it is not the Court’s task to evaluate the commercial wisdom of the course proposed, nor its correctness.
Provided the necessary power exists for the trustee to do what it proposes, the question of propriety is addressed by considering whether the power is being exercised in good faith, whether the trustee has given real and genuine consideration to the exercise of the power and whether the exercise of the power accords with the purpose for which the power was conferred and not for an ulterior purpose.
The propriety of the proposed exercise of power is ascertained by looking at the evidence advanced and the enquiries made by the trustee, the information the trustee had available to it and the trustee’s reasons for and manner of exercising its discretion. There must be sufficient information to enable the Court to form a view.
(Footnotes omitted)
[23] (2021) 66 VR 338 at [53]-[55].
In another application for judicial advice regarding whether a trustee would be justified in amending the trustee remuneration clause in a trust deed, Henry J said in Application by NGS Super Pty Ltd atf NGS Super that in providing judicial advice:[24]
… the Court should proceed on the basis that interests of the trust estate are paramount.
It is not the Court’s function to take over the exercise of the Trustee’s discretion, assess the commercial wisdom of the Trustee’s decision, or tell the Trustee what to do. An order giving judicial advice is permissive and usually in the form that the trustee “is justified” in doing something on the basis of a specified state of affairs or assumption.
The central question on this application is whether, on the material before it, the Court is satisfied that the Trustee’s proposed course of action or exercise of power to amend and make the Proposed Amendment is proper and lawful. The Court is concerned with whether the proposed course is within power and whether the exercise of power will not be improper in the sense that it is not exercised in good faith, with real and genuine consideration or in accordance with the purpose for which it was conferred, or it is exercised for an ulterior purpose.
(Citations omitted)
[24] [2021] NSWSC 1694 at [59]-[61].

Adopting the approach of Button J and Henry J, in providing judicial advice to the applicant I must be satisfied, first, that the applicant has the power to vary or amend the trust deed and, secondly, that the exercise of such power is proper.
The construction of “Beneficiary” and “Default Beneficiary” as defined in the trust deed
Pursuant to the trust deed, the rights and obligations under the trust deed are directed to the term “the Beneficiary”, defined to be the AFA. The trust deed at clause 1.1 defines the “Beneficiary” and “Default Beneficiary” as follows:[25]
Beneficiary means Association of Financial Advisers Limited ACN 008 619 921 or the profession successors thereof (“the Association”) unless the Association enters into liquidation, whether compulsory or voluntary (not being a voluntary liquidation for the purposes of amalgamation or reconstruction), or has an administrator, receiver or official manager or receiver and manager appointed in which case the Beneficiary shall mean the Default Beneficiary.
…
Default Beneficiary means the organisation, association, institution or fund (either incorporated or unincorporated):
(a)having objects similar to the objects of the Beneficiary; and
(b)whose constitution prohibits the distribution of income to its members, owners, or other private people; and
(c)who has been nominated by the Trustee from time to time by unanimous resolution as the Default Beneficiary.
[25] FDN 3, Exhibit SPN03, clause 1.1.
It was submitted that on its face the AFA entering liquidation in accordance with the merger deed would mean that the beneficiary as defined becomes the default beneficiary as defined.
It was further submitted that there was a degree of uncertainty as to whether the process envisaged in the merger deed constituted the exception prescribed in definition of “Beneficiary” in clause 1.1, namely that the envisaged liquidation is “a voluntary liquidation for the purposes of amalgamation or reconstruction”. It is not clear whether “amalgamation” as used in the trust deed is meant to refer to some formal procedure, such as a scheme of arrangement, or whether it has a broader meaning akin to what is proposed under the merger deed.
The applicant’s counsel referred to the decision in Woolworths Group Ltd v Pinnacle Liquor Group Pty Ltd, re Woolworths Group Ltd, where Farrell J considered various authorities and held:[26]
An amalgamation involves the combination of two separate share capital structures into one and it does not matter if the structure of the new share capital (e.g. classes and amounts of shares) does not reflect the structures of the predecessor systems.
The transfer of the assets and liabilities of one or more companies in a corporate group to another company or companies in the same corporate group, with the transferor company being deregistered is within the meaning of a reconstruction and amalgamation under s 413.
[26] [2019] FCA 1810 at [20] (Farrell J).
It was pointed out if the merger deed does contemplate an “amalgamation”, this would mean that, despite the merger, the beneficiary of the trust would remain the defunct AFA in liquidation.
By reference to the affidavit of the applicant’s solicitor there has been no resolution of the applicant nominating another organisation as default beneficiary in accordance with subclause (c) of the definition of “Default Beneficiary” in the trust deed.[27] It appears upon the AFA entering liquidation, the applicant would, in order to comply with the trust deed, need to nominate a default beneficiary and ensure that the conditions in subclauses (a) and (b) of the definition of “Default Beneficiary” in the trust deed are met. It is to be noted in accordance with subclause (b) of the definition of “Default Beneficiary” in the trust deed, clause 7 of the proposed constitution of the merged entity contains such an express prohibition against the distribution of income.[28]
[27] FDN 6 at [3].
[28] FDN 3 Exhibit SPN07, clause 7
Accordingly, to avoid the uncertainty that may arise from the term “amalgamation” and definition of “Default Beneficiary” in clause 1.1 of the trust deed, the applicant determined it was appropriate to exercise the power to vary the trust deed and amend the definition of “Beneficiary” to provide the merged entity is the beneficiary of the trust.
Proposed variation of the trust deed to change the beneficiary of the trust
Clause 8.1 of the trust deed permits the applicant to vary or amend the terms of the trust as follows:[29]
Variation of Trust Deed
(a)At any time prior to the Termination Date, the trusts, powers or provisions of this Deed may be altered, modified, varied, amended, revoked or added to (all of which are referred to in this clause as a Variation) as provided in this clause.
(b)All variations must be by deed or other instrument in writing signed by the Trustee following the passing of a resolution by the Trustee approving the Variations.
(c)Subject to paragraph (d) below a Variation is not Effective unless, on or before the instrument of Variation is entered into the Variation is approved by the Members in general meeting by majority resolution.
(d)A Variation that is administrative in nature shall not require any approval by the Members.
(e)A Variation may prejudicially affect the rights of the Beneficiary to income of the Trust Fund previously set aside for it or held for its benefit, or prejudicially affect the rights of the Beneficiary, to participate in the income or capital of the Trust Fund under the provisions of this Deed.
[29] FDN 3 Exhibit SPN03, clause 8.1
The trustee’s resolution
As explained above, on 3 February 2023, the applicant made a resolution to amend the trust deed[30] in accordance with the terms of the proposed variation. This was in compliance with clause 8.1(b) of the trust deed.
[30] FDN 6, Exhibit MHD01.
Clause 2 of the draft variation deed varies the trust deed as follows:[31]
[31] FDN 3, Exhibit SPN09, clause 2.1.
2Variation of Trust Deed
2.1In accordance with clause 8 of the Trust Deed, the Trustee varies clause 1.1 of the Trust Deed by:
(a)     deleting the definition of “Beneficiary” and inserting a new definition of “Beneficiary” as follows:
“Beneficiary” means Financial Planning Association of Australia Limited ACN 054 174 453” or the professional successors thereof (“the Association”) unless the Association enters into liquidation for the purposes of amalgamation or reconstruction), or has an administrator, receiver or official manager or receiver and manager appointed in which case the Beneficiary shall mean the Default Beneficiary; and
2.2The variation expressed in clause 2.1 is not effective unless there is:
(a)     approval by the AFA Members in general meeting by majority resolution; and
(b)     approval of the AFA Members and the FPA Members to the Proposed Merger, by special resolution.
The trustee’s resolution records that, following implementation of the merger proposal and completion of the variation to the trust deed, “the FPA as the new beneficiary is authorised to and can call upon payment to it of the whole of the AFA” trust fund. It is clear the purpose of the proposed variation was to avoid the uncertainty that may arise from the term “amalgamation” and the definition of “Default Beneficiary” in clause 1.1 of the trust deed.
As the proposed variation was not administrative in nature within the meaning of clause 8.1(d) of the trust deed, it required the approval by the AFA members in general meeting by majority resolution. Clause 1.1 of the trust deed defines members as individual financial members of the AFA.
The trustee’s resolution recorded it was resolved that, in accordance with clause 8.1(c) of the trust deed, a general meeting would be called of members (as defined in clause 1.1 of the trust deed) at the same time as the extraordinary general meeting on 28 February 2023 to seek approval of the members by majority resolution for the proposed variation.
The AFA board’s resolution
On 7 February 2023, the AFA board resolved to approve the proposed variation.[32]
[32] FDN 7, Exhibit SPN10.
The trustee’s resolution and the AFA board’s resolution were provisional
As recorded in the trustee’s resolution approving the proposed variation and noted in the AFA board’s resolution approving the proposed variation, the proposed variation was conditional on and subject to judicial advice as follows:
The approval of the amendments to the AFA Investment Fund Trust Deed as set out in the annexed Variation Deed is also conditional on, and subject to, the Supreme Court of South Australia giving judicial advice that the Trustee is justified in exercising its powers to undertake these steps and propose this amendment to the Members.
Accordingly, the trustee’s resolution and the AFA board’s resolutions were provisional as they were subject to judicial advice and approval of the AFA members.
The power to vary or amend the trust deed
The power to vary or amend in clause 8.1 of the trust deed is expressed in broad unrestricted terms permitting:
… the trusts, powers or provisions of this Deed may be altered, modified, varied, amended, revoked or added to …
The power expressly permits, by clause 8.1(e) of the trust deed, a variation that prejudices the rights of the beneficiaries. Such power would permit adding new beneficiaries or removing existing beneficiaries.[33]
[33] Kearns v Hill (1990) 21 NSWLR 107 at 110-111; Society of Lloyd’s v Robinson [1999] 1 WLR 756; Re Highcroft Trust [2008] NZHC 2019; Re McGowan and Valentini Trusts (2021) 63 VR 449 at [123]‑[127] (McCauley J); Lynton Tucker, Nicholas Le Poidevin and James Brightwell, Lewin on Trusts (Thomson Reuters, 20th ed, 2020), para. [33-080]
However, as submitted, such a power may still only be exercised for the purpose for which it was given. As stated in Lewin on Trusts:[34]
… the purpose will be promoting the best interests of the beneficiaries (or some one or more of them) but that depends on the nature and purpose of the trust. The correct formulation has been held to be that the power must be used to promote the purpose for which the trust was created. … the use of a power of amendment must be confined to such amendments as can reasonably be considered to have been within the contemplation of the parties when the trust instrument was made, having regard to its nature and circumstances. Another way of expressing the point is that an amendment must not change the whole substratum of the trust or its basic purpose. The substratum or basic purpose may, however, undergo a gradual change and the validity of an amendment is to be judged, it seems, by reference to matters as they stood immediately before the amendment and not as they stood at the creation of the trust.
[34] Lynton Tucker, Nicholas Le Poidevin and James Brightwell, Lewin on Trusts (Thomson Reuters, 20th ed, 2020), para. [33-079] points 1 and 3.
The purpose of the trust as set out above is to manage the surplus funds of the AFA for its benefit, in other words for the benefit of the individual members of the AFA. By reference to the financial records of the trust for the last two years, exhibited to Mr Nielsen’s first affidavit, it would appear the trust funds have been managed and invested conservatively.
As contended by the applicant’s counsel if the merger comes into effect (which requires the approval of the individual members), those members will most likely become members of the merged entity under the terms of the merger deed and AFA will cease to have substantive operations.
Despite that, there will still be surplus funds of the AFA in the trust which require management and investment for the benefit of the members, who would become members of the merged entity. The proposed variation recognises this and seeks to continue to have the trust fulfil its purpose.
It is a rare case where a trust deed would be construed as permitting the removal of the beneficiary for another beneficiary. As counsel submitted, it seems strange to ask whether an exercise of a power of variation to remove a beneficiary and substitute another second beneficiary can ever be in the best interests of the (first) beneficiary. However, when this matter was looked at in terms of substance rather than form, the key issue was what was in the best interests of the members of the AFA, not the mere corporate vessel, the AFA itself. When considered in this manner, the exercise of the power of variation appeared to be in the best interests of the AFA members, appeared it would be undertaken in good faith and appeared to be a considered step towards assisting the AFA to implement its commercial decision.
Submissions of counsel appointed to assist the Court as amicus curiae
Counsel appointed to assist the Court as amicus curiae submitted that the commentary in Burke regarding the nature of the advice jurisdiction, and how and when it should be exercised, concerned circumstances where there is a need to make a binding determination. It was submitted that there is no suggestion that the outcome of the judicial advice in this matter will affect the substantive rights of the AFA members.
Counsel agreed clause 8.1 of the trust deed clearly prescribes the power to make the proposed variation. It was submitted the fact that the beneficiary is to be replaced raised the question on face value as to whether the proposed variation goes to the substratum of the trust. Counsel referred to a situation where a power to vary or amend a trust deed might be exercised to destroy the substratum of trust and, as such, would be an invalid exercise of the power. Counsel submitted that this matter does not create such a concern even though the proposed variation is to replace the beneficiary. It was contended that this is in part because of the protection provided in clause 8.1(3) of the trust deed.
Counsel submitted that to determine the impact of the proposed variation required a consideration of the effect it would have on the AFA members. Counsel referred to clause 7.2 of the merger deed, which provides for the transference of membership. Shortly stated, if a member makes a valid application for membership, they will effectively become a member of the merged entity. To make a valid application, it appears members will have to meet eligibility criteria. The criteria are set out in schedule 3 to the merger deed. Schedule 3 recognises the categories of membership that currently exist in the AFA. It was submitted that the eligibility criteria do not appear to be onerous in the circumstances where there is evidence before the Court as to the nature of the AFA and its membership. It was submitted there was no ostensible reason why the merged entity would seek to limit its membership in a particular way, and there seemed to be, by reference to the merger deed, a clear mechanism in place which will allow AFA members to transfer their membership to the merged entity. As such the current members of the AFA can, if they choose to transfer their membership, continue to be the beneficiaries ultimately of the trust through the merged entity.
It was submitted these considerations, combined with the existence of clause 8.1(e) of the trust deed, provide some comfort that the proposed exercise of power fell within the scope and validity of what the power was intended to provide. Counsel submitted she did not have any concerns that any provision of the Act impacted upon the proposed exercise of the power and, accordingly, that the power to make the proposed variation existed.
Turning to the second question as to whether the applicant was justified in exercising the power, it was submitted that this requires an assessment of whether the applicant has considered the impact on the AFA members if the power was to be exercised, and the impact if it was not.
It was submitted that with respect to the impact on the members, it is clear the applicant has engaged in a detailed consideration of how the proposed variation will affect members. It was pointed out that the information filed in support of the application demonstrated that there has been an attempt to ensure the continuity of benefit to the AFA members. The merger summary, the merger deed, and the notice of general meeting, it was submitted, are evidence of the steps taken by the applicant to ensure that it has considered the impact of the decision on the functioning of the trust generally. Counsel submitted she saw nothing in the documentation filed in support of the application which led her to be concerned about whether the proposed exercise of power was in good faith.
Counsel submitted it was also relevant to consider whether the proposed variation was necessary in the circumstances. On balance, it was submitted that I could be satisfied that the exercise of power was not an overreach of the exercise of power because of the uncertainties in the definition of “Beneficiary” in the trust deed and whether the merged entity would fall within the definition of “Default Beneficiary”. Counsel submitted that, in her view, the fact the uncertainties existed demonstrates the proposed exercise of power was not an overreach of the exercise of power. Rather, counsel contended, it was evidence of good consideration of the 3,000 plus members who are to benefit from the proposed variation.
Conclusion
Having regard to the affidavits filed in support of the application and the submissions, I was satisfied that the Court had jurisdiction under s 91 of the Trustee Act 1936 (SA) when read with s 69 of the Administration and Probate 1919 (SA), and/or rule 232.2 of the Uniform Civil Rules 2020 (SA) to hear the application and provide judicial advice to the applicant regarding the proposed exercise of power of variation pursuant to the terms of the trust deed.
I was satisfied having regard to clause 8.1 (a) and (e) of the trust deed the applicant had the power to do what it proposed, noting that the proposed exercise of such power was pursuant to clause 8.1(c) subject to the approval of the AFA members which, upon provision of such approval, would endorse the proposed exercise of the power.
I was also satisfied sufficient evidence and information had been placed before the Court to ascertain the propriety of the proposed exercise of power.
I was of the view the proposed exercise of power was to be exercised in good faith, real and genuine consideration had been given to it, and it accorded with the purpose for which the power was conferred by the trust deed. Accordingly, I was satisfied the applicant would be justified in exercising the power of variation pursuant to the terms of the trust deed to substitute the FPA for the AFA as beneficiary of the trust.

[2023] SASC 48

31 March 2023